Employers (if any) that were hoping to offer a Health Reimbursement Arrangement (HRA) for employees to purchase individual health coverage through a government exchange will be disappointed by guidance issued by the Internal Revenue Service.
Under the new guidance, it does not appear to be legal under any arrangement for employers to define a contribution through a standalone HRA or other pre-tax employer payment plan for the purchase of individual coverage unless it is for the purchase of HIPAA-excepted benefits only.
This has drawn criticism from certain consultants that have been marketing a defined contribution approach to employer sponsored benefits, one that would allow employees to access both the HRA contribution and premium tax credits from the government. While the guidance is extremely technical leaving some gray areas, our legal counsel advises us that such an arrangement does not seem possible under the new regulations unless new guidance is issued. Employers should proceed carefully if they are advised to pursue this path.
Employers may continue to offer “integrated” HRAs to employees that are enrolled in a group benefit plan. Interestingly, the regulations also appear to leave the door open for employers to contribute to an HRA as an incentive for employees to enroll in another group health plan, such a spouse’s health plan.
As for defined contribution, it is still possible for an employer to define a contribution through certain nascent private exchanges that ensure the plans they offer (typically insured products) meet federal requirements for group health plans. I like to think of this model as “dual choice” on steroids, with an employer potentially offering employees a multitude of group benefit choices.
It is important to note, however, that employers had this option all along, before exchanges. And for that matter, they have also been able to define a contribution by deciding how much of an insured premium they want to cover. The value of private exchanges forming under this model relies heavily on the ability to negotiate lower prices with insurers and the capacity to take on the administration of benefits in this kind of arrangement.
Tell me if you disagree. I’d love to hear your thoughts!
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